Steep fines fail to deter collusion

Several construction firms have been fined after they reached settlement agreements for collusive tendering. Some included the construction of  stadiums for the 2010 World Cup. (Photo: David Harrison)

Several construction firms have been fined after they reached settlement agreements for collusive tendering. Some included the construction of stadiums for the 2010 World Cup. (Photo: David Harrison)

Collusion among firms has increased since last year, despite key players in a number of sectors, including construction, transport, removal services and cable supply, having been fined million of rands. 

In the past nine months, beginning in April, the Competition Tribunal has confirmed settlement agreements for 23 companies and is still to hear or decide on 15 cases submitted to the tribunal by the Competition Commission. 

This is compared with 22 settlement agreements for the past financial year, April 2013 to March 2014, which included the fines imposed on construction companies Aveng, Basil Read, Esorfranki, G Liviero & Son, Giuricich Bros Construction, Haw & Inglis, Hochtief Civil Engineering, Hochtief Construction AG and Norvo Construction, for collusive tendering in projects after 2006. 

These included tenders for the World Cup stadiums. 

Fines imposed on other companies were settled this year and some hearings are still pending. 

David Lewis, head of Corruption Watch, warns that collusion affects the public and, more often than not, poorer people. This is the sector hardest hit by a lack of efficient delivery of public service. 

A tribunal official said that evidence was emerging in some cases that collusion was taking place with the knowledge of the companies’ customers. In the two cases below, it is allegedly government entities.
“How can competition authorities ever win against corruption if customers themselves are encouraging collusion,” the official said. 

In the case of furniture removal company Propack Removals, fined R454 127, chief executive Leon Engelbrecht testified that clients, who did not want to go through a lengthy tender process, had asked him to obtain quotes from supposedly rival companies. In return Propack would submit high quotes when those companies required it. 

An investigation by the Competition Commission revealed that more than 35 000 relocation tenders were subjected to collusion by 69 companies in the sector, for tenders issued among several government departments including the South African National Defence Force, the South African Police Service (SAPS) and parastatal Eskom, as well as company PPC. 

Among those fined were Matthee Furniture Removals (R159 205), Viking Transport (R1 880 679), Low Line Furniture Removal (R159 205), Transfeight International (R607 492), Joel Transport (R150 582) and JH Retief Transport, which was fined over R4-million. 

Elardus de Lang, the head of bulletproof vest supplier Fields Wear, said SAPS was a major client the company had supplied for many years. He said senior police officials were aware that a largely women-owned black economic empowerment (BEE) company, Camclo, which tendered in the same sector, rented floor space from Fields Wear. 

“They approved the relationship that we rented floor space to them and we were actually uplifting a small BEE company,” he told the tribunal. 

Fields Wear also assisted Camclo with submitting tenders. 

De Lang said he was therefore surprised when the police force lodged a complaint with the Competition Commission. The company was fined R645 710 by the tribunal.

These contraventions of the Competition Act fall under horizontal prohibited practice, which includes: fixing prices or other trading conditions; dividing markets by allocating customers, suppliers, territories or specific types of goods or services; or collusive tendering. 

It is one of a number of prohibited practices dealt with by the Act, including abuse of dominance and constrictive business practice. 

The biggest fine in this financial year was awarded to power cable company ATC, which stands accused of colluding with competitors to fix prices and to divide up the market. 

The company was fined more R81-million. 

British Airways was fined R22-million after being found guilty of colluding with Virgin Atlantic to “fix” the fuel surcharge on flights between South Africa and the United Kingdom. 

According to a consent order, in 2008 the Competition Commission initiated an investigation into the airlines and found that, between August 2004 and January 2006, British Airways and Virgin Atlantic had “participated in an agreement and/or concerted practice in which they co-ordinated their pricing in relation to their respective fuel surcharge rates to passengers travelling on the United Kingdom to South Africa routes and visa versa through the exchange of pricing and other sensitive information”. 

An investigation into allegations found four companies had colluded in a tender for the extension of the Hartebeesfontein Water Care Works Project. These were Aveng, a subsidiary of Grinaker-LTA, a Murray & Roberts and Dlamini joint venture, Pele Kaofela and a Concor and Masscrete joint venture. 

Grinacker-LTA was awarded the tender in September 2007. 

Pele Kaofela reached a settlement with the commission for a fine of R37 623 for agreeing in May 2004 with other bidders to accept a loser’s fee for the project. The company was never paid the agreed R500 000. 

Grinacker applied for leniency. It was not one of the cases Murray & Roberts disclosed among the projects in the settlement agreement it reached with the commission, and resulted in the company last year paying a R309-million fine. 

Pele Kaofela was among the 25 firms that did not respond to the commission’s settlement agreement for construction companies launched in 2011 that resulted in a total R1.46-billion fine for 15 firms.   

The brick manufacturing sector is also under scrutiny, with Inca Concrete Products agreeing to pay an R800 000 penalty for its role in collusive conduct, which includes allocating customers within the sector and agreeing with other companies on pricing. 

Saldanha Foods was fined more than R4-million for its agreement, as a member of the South African Pelagic Fish Processors’ Association, to fix prices paid to vessel owners or operators, skippers and crew who were catching pelagic fish. 

Oceana Brands Limited and Premier Fishing SA previously paid penalties of R34.7-million and R2.1-million respectively for collusion. 

Cycling shops and retailers, accused of price-fixing following a 2008 meeting, were given a reprieve after the tribunal ordered that the companies involved must attach notices at their businesses admitting that they were guilty of price-fixing and giving an undertaking that they now comply with the Competition Act. 

When chairperson Norman Manoim queried the commission’s decision not to impose an administrative fine, representatives for the commission said a fine would affect the livelihoods of many of these businesses.

Pompous circumstances: Is one man’s affront another man’s rea?

Barend van Dyk van Niekerk, then a senior lecturer in law at the University of the Witwatersrand, was charged with contempt of court arising from an article “Hanged by the neck until you are dead”, which was published in the South African Law Journal in 1969. 
It was alleged that it had impugned the impartiality of the judiciary in the imposition of the death sentence. 

After a three-day trial, he was acquitted, the court finding an absence of mens rea (intent) on his part: State vs Van Niekerk 1970. In the course of his judgment Judge CJ Claassen said of Van Niekerk that “we think he is talkative, inclined to be pompous and somewhat foolish”.

One of Van Niekerk’s former students, Mitchell Ramsay, wrote to Professor Ellison Kahn in September 1981 about an incident that took place after Van Niekerk’s acquittal. “If my memory serves me correctly, and I am sure that it does, in delivering his judgment Mr Justice CJ Claassen described the accused as being talkative, pompous and inclined to be foolish.

“Immediately prior to Professor Van Niekerk’s resuming lectures after his acquittal, one of the students in my class wrote in large letters on the blackboard in the lecture room: ‘WELCOME BACK DR VAN NIEKERK’. Beneath this he wrote in brackets: Beware, he is talkative.

“Professor van Niekerk entered the lecture room to much cheering and applause and very soon saw what was written on the blackboard. He turned to the class and with a huge [and very typical] smile he announced: ‘Yes, and the judge also said that I was pompous and inclined to be foolish. But, never mind, I consoled myself, I was in good company.’?” 

From Law, Life and Laughter: Legal Anecdotes and Portraits by Professor Ellison Kahn, Juta & Co

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